Over the past year, the following significant reforms have been made to Spanish law on direct taxation of individuals:
Royal Decree-Law 5/2023
Royal Decree-Law 5/2023, which was enacted on 28 June 2023, through which measures to respond to the economic and social consequences of the war in Ukraine and to support the reconstruction of the island of La Palma and other situations of vulnerability were adopted and extended, and the European Union (EU) Directives on structural modifications of trading companies and the work/life balance for parents and caregivers were transposed, ensuring the execution and compliance with EU law. The most important measures contained in this legislation that affect individual taxation are:
- The introduction of a 15% tax credit in personal income tax (PIT) for the acquisition of new electric vehicles and the installation in real estate owned by the taxpayer of a system to charge batteries for electric vehicles.
- The tax benefits foreseen for the island of La Palma as regards business tax and real estate tax are extended until 31 December 2023.
- The extension until 31 December 2023 of the 0% value-added tax (VAT) rate applicable to basic food products and the 5% VAT rate on olive and seed oils, as well as pasta.
Law 12/2023, enacted on 24 May 2023, on the right to housing, was published in Spain’s Official State Gazette on 25 May 2023. The main amendments included in this law that affect individual taxation are the following:
- PIT Law is amended with effect from 1 January 2024 to include the following incentives applicable to housing tenancy contracts concluded as of 26 May 2023. In this regard, the positive real estate income will be reduced by the following percentages:
- 90% when the same lessor has entered into a new lease contract on a dwelling located in a stressed residential market area, with a reduction in the rent of at least 5% with respect to the rent of the previous agreement after the application, if appropriate, of the annual update clause of the previous contract
- 70% when the previous requirements are not met but: (i) the lessor has rented the dwelling for the first time, it is located in a stressed residential market area, and it is rented to people aged between 18 and 35 years, or (ii) the lessee is a Public Administration or a non-profit entity that earmarks the dwelling for use as social housing at an affordable rent, for lease to people in a situation of economic vulnerability or if it is included in a public housing programme that limits the rental income.
- 60% when the requirements above are not met but the dwelling has been subject to a rehabilitation project that has been completed within the two years prior to the date on which the housing tenancy contract is concluded.
- 50% in all other cases.
The above requirements must be met at the time of entering into the lease contract, and the reduction will be applicable during the period in which they continue to be met.
All these reductions will become inapplicable if the regulation regarding the rental increase of dwellings located in a stressed residential market area is not complied with.
A transitional regime is established in PIT according to which the housing tenancy contracts concluded before 26 May 2023 may benefit from the 60% reduction.
- The surcharge that can be applied in local real estate tax to dwellings that have been empty for more than two years may be increased to 150% if certain requirements are met. This measure aims to encourage the rent of dwellings and reduce empty real estate.
Law 9/2023, enacted on 3 April 2023, which amends Law 12/2002, of 23 May 2002, which approves the Economic Agreement with the Autonomous Community of the Basque Country, was published in the Spain’s Official State Gazette on 4 April 2023. The main amendments included in this law that affect individual taxation is the introduction of a Temporary Solidarity Tax on Large Fortunes.
The Historical Territories of the Basque Country will have the capacity to regulate it in its entirety. To date, none of the Historical Territories has approved the corresponding regulations. Where appropriate, it will apply from 1 January 2023.
It will be levied by the competent Provincial Council or by Central Government, depending on the place where the taxpayer is subject to PIT.
On 28 December, Law 38/2022, of 27 December 2022, on the establishment of temporary energy taxes and taxes on credit institutions and financial credit establishments and creating the temporary solidarity tax on large fortunes and amending certain tax rules, was published in the Official State Gazette.
- This regulation creates the temporary solidarity tax on large fortunes for the 2022 and 2023 tax periods. This tax is classified as a direct tax, personal and complementary to wealth tax, that is levied on an individual’s net wealth in excess of 3million euros (EUR).
- This regulation has been extended to the individuals to which wealth tax applies. For tax period 2022 onwards, wealth tax applies to shareholdings when at least 50% of the total assets of the company consists, directly or indirectly, of Spanish real estate assets. For these purposes, the value of the real estate assets would not be the book value reported for accounting purposes by the company, but the value arising from specific wealth tax rules for real estate assets. This value would be the higher of the acquisition value, the cadastral value, and any other value assessed by the tax authorities for tax purposes.
On 24 December 2022, Law 31/2022 of 23 December 2022, was published in the Official State Gazette. The main measures contained in this Law that affect the taxation of individuals are the following:
- Extension of the excluding limits of the objective estimation method: The quantitative limits that have been applied in previous years and that delimit the scope of application of the objective estimation method for the economic activities included in the scope of application of said method, with the exception of agricultural, livestock, and forestry activities, which have their own quantitative limit by volume of income, are extended for fiscal year 2023.
- PIT rates applicable to the savings tax base have been increased. Until 31 December 2022, the maximum rate was 26%. From 1 January 2023, for taxable income over EUR 200,000, the rate is 27% instead of 26%, and a higher tax rate of 28% is created for taxable income over EUR 300,000.
On 22 December 2022, Law 28/2022, of 21 December 2022, on the promotion of the ecosystem of emerging companies was published in the Official State Gazette. This Law has modified the following tax regulations:
- As of 1 January 2023, the following favourable tax treatment for the award of shares or stock options to start-up employees (according to the definitions established in the Law 28/2022) has been introduced:
- The tax exemption is increased up to a maximum annual gross amount of EUR 50,000 per employee for start-up employees.
- Deferred taxation for non-tax-exempt income derived from the award of shares or stock options to start-up employees until certain events take place.
- Special valuation rule on the award of shares to start-up employees.
- As of 1 January 2023, this Law has improved the deduction for investment in new or recently created companies. In particular, the deduction is increased from 30% to 50% of the amounts paid for the purchase of shares in new or recently created companies. The maximum limit of the deduction is also increased from EUR 60,000 to EUR 100,000. In general terms, the period for buying shares is increased to five years (previously it was three years) from the time of the company’s incorporation, and up to seven years for certain categories of start-ups.
- As of 1 January 2023, tax regulation of carried interest has been introduced. It is established that carried interest will be classified as employment income and a favourable tax regime is approved based on the inclusion at 50% of the income obtained, provided that certain requirements are met.
- As of 1 January 2023, this Law has introduced modifications to the Special Regime for PIT purposes for workers posted to Spain. In particular, some of the requirements to be eligible for the regime have been relaxed and the circumstances under which individuals are eligible for the Special Regime have been extended. The main modifications are:
- Eligible individuals must not have been tax resident in Spain in the five tax periods prior to their posting to Spanish territory. Note that, until 31 December 2022, the Special Regime required a period of ten years.
- It is approved that the spouse or the child's parent and children under 25 years of age (or those of any age if they are legally considered disabled) may also opt for the application of the regime if they meet certain requirements.
- In addition, individuals posted to Spain whose work activity is performed remotely, through the exclusive use of computer, telematic, and telecommunication means and systems, are also eligible for the regime.
- Individuals posted to Spain as a consequence of carrying out in Spain an economic activity classified as an entrepreneurial activity, in accordance with the procedure described in Article 70 of Law 14/2013, of 27 September 2013, are also eligible for the regime.
- Individuals posted to Spain as a consequence of carrying out in Spain an economic activity as highly qualified professionals and who provide services to start-ups are also eligible for the regime.